When the FTSE 100 plunged on war fears, the International Consolidated Airlines Group (LSE: IAG) share price fell faster than almost any other stock. Which is exactly what I’d expect. The British Airways owner always seems to be on the front line of market volatility, whatever the cause. So why do I own it?
IAG shares took an absolute beating during the pandemic, as global flights were grounded. It only survived by piling on debt and launching a rights issue. By the end of it, the shares looked dirt cheap, with a price-to-earnings (P/E) ratio of three or four, and I was sorely tempted. IAG looked terrific value, but I was still shaken by its pandemic near miss.
Volate FTSE 100 stock
Its shares soared once the world started flying again. Sadly, I didn’t move fast enough, and missed my moment. Then on 2 April last year, US president Donald Trump announced his ‘liberation day’ trade tariffs. Global share prices plunged and once again, IAG took one of the biggest hits. Investors feared a global slowdown in trade would hurt business flying, particularly transatlantic carriers like BA.
This time I was ready. When Trump announced a 90-day tariff pause on 9 April, I made a beeline for IAG shares. As expected, they rocketed, and I quickly found myself sitting on a 60% gain.
This week’s slide has done its damage though. Measured over 12 months, IAG shares are up just 10%, although they’re still 158% higher than two years ago.
The share price fell more than 5% on both Monday and Tuesday, following the closure of Middle Eastern airspace. Thousands of BA flights between London Heathrow and Abu Dhabi, Amman, Bahrain, Doha, Dubai, and Tel Aviv were cancelled.
The numbers could grow if hostilities intensify. Some IAG investors may even wonder whether to sell, but that’s not what I plan to do. At The Motley Fool, we believe investors should focus on the long term. Short-term volatility is the price investors pay for the superior returns equities generate over time.
Turbulence
Rather than sell, I prefer to use market dips to buy more shares at lower prices, and grab a higher yield too. It takes nerves, but the principle holds even during the current uncertainty. Today, a strange thing has happened. IAG shares jumped almost 3% this morning, even with news headlines dominated by drone and missile attacks.
This kind of move isn’t that unusual. Even when markets are plunging, they have good days as bargain seekers take advantage. I suspect IAG will have a few more bad days in the weeks ahead.
The stock looks terrific value again with a P/E of 6.1. However, I suspect IAG will always trade at some kind of discount, given the elevated risk factor.
Investors might consider buying IAG now, ideally in small tranches, taking advantage of any dips. I think a minimum five-year horizon, allowing time for recovery, is a good idea. Over that term, I think the shares could be a terrific investment. And it’s not the only FTSE 100 stock I’m avidly watching during today’s volatility.
